As a prelude to the first official visit of Indian Prime Minister Narendra Modi to Sri Lanka,Central Bank Governor Arjuna Mahendran is predicting that there is a huge potential for a fully-fledged Free Trade Agreement between the two countries.

In an interview with the prestigious Indian newspaper “The Hindu”, Central Bank Governor Mahendran hopes that announcements about trade agreements and collaborations will be announced when Prime Minister Modi visits Sri Lanka coming week-end.

Signalling potentially closer economic ties with India, Sri Lanka is inviting several top Indian companies to invest in major projects in the island nation, particularly for collaborations in the manufacturing sector.

Referring to the manufacturing of tyres, two-wheelers and three-wheelers as potential areas of collaboration between the two countries, the Central Bank Governor has pointed out that these would bring “an immediate benefit to the Sri Lankan economy.”

Mr. Mahendran has also stated in the interview that Mr. Modi has “embraced Sri Lanka very warmly” and that the new Government is really looking forward to “interacting with India now on a different basis, on a much more stable and constructive basis than what has occurred in the past. So, I hope this is really the start of a new era in our relationship.”

Mr. Mahendran also stated that both President Sirisena and Prime Minister Ranil Wickremesinghe saw a huge potential for the Comprehensive Economic Partnership Agreement (CEPA) to be expanded into a full-fledged Free Trade Agreement. India is Sri Lanka’s largest trade partner and bilateral trade between the countries stood at $4.6 billion in 2014.

On the likely concerns of the local business, he said “obviously there are sensitivities by local businessmen on whether they will have an even playing field with which to compete against their Indian competitors.”

However, he added, Sri Lankan industries were now well positioned to take on competition from Indian counterparts following the end of the war. “So, I am quite optimistic. I think a Free Trade Agreement with India is definitely very desirable for Sri Lanka, not only with India but also with China and the United States.”

On the Central Bank’s position on bilateral aid, particularly from countries such as China, the Governor said while there was a “marked tilt towards China” earlier — reflected in the debt accumulated in Chinese banks — Sri Lanka would now go for a “healthy balance between sourcing projects from different countries.

The Central Bank and Sri Lanka’s Finance Ministry are communicating with Indian law enforcement agencies to track hidden assets or money transferred overseas by powerful figures in the administration of the former regime. (Input from “The Hindu”)

The newly appointed Governor of the Central Bank Arjuna Mahendran is an economist and banker. He was the former Managing Director of the HSBC Bank, Chief Investment Officer of Emirates and was also the Chairman and Director-General of the Board of Investment of Sri Lanka.

Educated at the prestigious Royal College in Colombo [and at Balliol College, Oxford, he gained a MA in Philosophy,Politics and Economics. Having joined the Central Bank of Sri Lanka earlier,he had served as a senior economist and was appointed as Governor of the Central Bank in January 2015.